Climate-related natural disasters are pushing up insurance costs for homeowners in the most-affected regions, as per a Treasury Department report released on Thursday. The study, spanning 2018-22 and including data beyond that, revealed 84 disasters costing $1 billion or more, excluding floods, resulting in a total of $609 billion in damages. Floods are not covered under homeowner policies.
During this period, policy costs across all categories increased 8.7% faster than the inflation rate, with the burden falling mainly on residents in areas hit hardest by climate-related events. For consumers in the top 20% of zip codes with the highest expected annual losses, premiums averaged $2,321, which is 82% more than those in the lowest-risk zip codes.
Nellie Liang, undersecretary of the Treasury for domestic finance, stated, “Homeowners insurance is becoming more costly and less accessible for consumers as the costs of climate-related events pose growing challenges to both homeowners and insurers alike.”
The report coincides with ongoing efforts to combat wildfires in the Los Angeles area, where at least 25 people have died and 180,000 homeowners have been displaced. Treasury Secretary Janet Yellen highlighted the unknown costs of the fires but emphasized the report’s reflection of a serious ongoing problem. The period under review saw nearly double the annual total of disasters declared for climate-related events compared to the period from 1960-2010.
Yellen pointed out that the impact of climate-related events extends beyond wildfires, affecting Americans in various regions, from severe storms in the Great Plains to hurricanes in the Southeast. She warned of rising insurance costs threatening the long-term financial well-being of American families.
Homeowners and insurers in the most-affected areas faced additional challenges. Nonrenewal rates in high-risk areas were 80% higher than in less-risky areas, and insurers paid average claims of $24,000 in high-risk areas compared to $19,000 in low-risk regions. In the Southeast, claim frequency was 20% higher than the national average due to frequent hurricanes.
In the Southwest, including states like California hit by wildfires, 3.3 million acres were burned during the period, with five events causing over $100 million in damages. The average loss claim was nearly $27,000, almost 50% higher than the national average. Nonrenewal rates for insurance were 23.5% higher than the national average.
The Treasury Department released the findings shortly before the end of the current administration, expressing hope that the incoming administration under President-elect Donald Trump would take action based on the report. An official stated, “We certainly are hopeful that our successors stay focused on this issue and continue to produce important research on this issue and think about important and creative ways to address it.”
